Reference no: EM133064206

ACCG 200 Fundamentals of Management Accounting - Macquarie University

PART A: MULTIPLE CHOICE QUESTIONS

1. Indirect labour is part of: A Conversion cost
B Prime cost
C Period cost D Product cost

2. Upstream costs for a manufacturing firm consist of:

A Research and Development; Manufacturing; Distribution B Customer service; Distribution; Marketing
C Manufacturing; Customer service, Supply
D Research and Development; Product Design; Supply
3. All of the following would be classified as product costs except: A Property taxes on production equipment
B Insurance on factory machinery C Salaries of the advertising staff D Wages of machine operators

Questions 4-8 relate to the following information.

Annenbaum Corporation uses the weighted average method in its process costing system. The company has the following information available for the month of June.

Work in process, 1 June - 400 units
Direct material: 65% complete $5 700
Conversion costs: 45% complete 6 800
A total of 6500 units were started and 5900 units were transferred out. Costs incurred during June:
Direct material: $125 500
Conversion costs: 207 000

Work in process, 30 June
Direct material: 50% complete Conversion costs: 35% complete

(Note: Your answers may differ from those offered below due to rounding errors. In all cases, select the answer that is the closest to the answer you computed)
4. What are the equivalent units for conversion costs for the month?

A 6 250
B 5 900
C 350
D 6 900

5. The cost per equivalent unit for conversion costs for the month?

A $30.99
B $35.92
C $33.12
D $34.21

6. The cost per equivalent unit for materials for the month?

A $19.01
B $19.61
C $20.50
D $18.19
7. The total cost of units completed and transferred out during the month is closest to: A $332 500
B $345 000
C $322 777
D $377 485
8. The cost of ending work in process inventory for the month is closest to: A $19 148
B $22 223
C $54 708
D $27 354
9. Car hire companies would be classified as: A Mass services
B Service shops C Retailers
D Professional service

10. Job costing for service entities applies when:

A Customer contact is low
B There is significant back office involvement C The number of services produced is low
D The number of services produced is high

11. The value chain for a merchandising entity includes:
i. design
ii. purchasing
iii. marketing
iv. distribution

A i and ii
B ii, iii and iv
C ii and iv
D i, ii and iii

Question 12 -14 relate to the following information:

The Kelsey Manufacturing Company Ltd has two production departments (Assembly and Finishing) and two support departments (Janitorial and Personnel). The usage of the two support departments in 2012 is as follows:

Service provided by:	Service provided to:
	Personnel	Janitorial	Assembly	Finishing
Personnel	-	10%	60%	30%
Janitorial	5%	-	40%	55%

The budgeted costs in the support departments of 2012 were as follows:

Personnel    $90,000

Janitorial     $50,000

12. Using the direct method, what is the Janitorial Department cost allocated to the Assembly Department?

A $28 948
B $21 053
C $34 158
D $25 000

13. Using the step-down method, what is the amount of Janitorial Department cost allocated to the Finishing Department?

A $28 947
B $34 158
C $32 450
D $27 500

14. Using the reciprocal method, what is the amount of Personnel Department cost allocated to the Assembly Department?

A $92 965
B $59 296
C $55 779
D $61 977

15. When the step-down method is used to allocate support department costs, a common way to select the first support department in the sequence is to choose the support department which:

A Obtains the highest yield
B Serves no other support department
C Serves the greatest number of other support departments
D Obtains the highest yield AND serves no other support department

Questions 16 and 17 relate to the following information.

St. James, Inc., currently uses traditional costing procedures, applying $800,000 of overhead to products Beta and Zeta on the basis of direct labour hours. The company is considering a shift to activity-based costing with the following information provided:

Overhead activity	Overhead cost ($)	Cost driver	Cost driver consumption
			Beta	Zeta
Materials handling	360,000	Number of parts	2,250 parts	750 parts
Machine setting up	280,000	Number of set-ups	45 set-ups	55 set-ups
Assembly	160,000	Direct labour hours	1,200 hours	2,800 hours

16. The overhead cost allocated to Beta using traditional costing procedures would be: A $240,000
B $356,000
C $444,000
D $560,000
17. The overhead cost allocated to Beta using activity-based costing procedures would be: A $240,000
B $356,000 C $444,000 D $560,000

18. The benefits of Activity based costing are the greatest when:

A Manufacturing overhead costs account for a small portion of the total product costs. B Significant manufacturing overhead costs are driven by production volume.
C Non-manufacturing costs that are related to production are significant. D Production involves little customization.

19. When a traditional, volume-based costing system is used, which of the following products is most likely to suffer from cost distortion?

A A high-volume, medium-complexity product B A low-volume, low-complexity product
C A low-volume, medium-complexity product D A low-volume, high-complexity product

20. C Limited produces two products (A and B) from a particular joint process. Each product may be sold at split-off or may be further processed. Joint production costs for the year amounted to $60 000. Sales values and costs are as follows.

			Further processing
Product	Units	Sales value at	Sales value	Separable
	produced	split-off		costs
A	8000	$40 000	$78 000	$10 000
B	6000	$78 000	$90 000	$9000

If the joint production costs were assigned using the relative sales value method the joint costs allocated to A would be:

A $20 339
B $27 383
C $27 857
D $0. All joint costs are allocated to B

Part B Question 1

The WildSide Company modifies production motorcycles for superbike racing to customer order. It operates a job costing system. The following information is available for the month of June 20X3:

Account balances 01/06/20X3:
Raw material inventory	$30,000
Manufacturing supplies inventory	$5,000
Work in process inventory	$46,250
Finished goods inventory	$34,500

Purchases during June:

Direct material	$30,000
Indirect material-Manufacturing supplies inventory	$15,000

Other costs incurred during June:
Manufacturing supplies inventory issued	$6,000
Indirect labour cost	$3,500
Depreciation of manufacturing equipment	$12,000
Electricity-Factory	$2,500
Factory Rent	$6,000

Jobs costing $64,500 were sold at the price of $76,400 on credit at the end of June.

Account balances 30/06/20X3:

Finished goods inventory                              $23,250

Work in process inventory                             $71,500

Required:

Complete the relevant T- accounts (provided on the next page) to show the flow of costs through the company's manufacturing accounts and answer the questions provided.

(a) What was the cost of goods manufactured?

(b) What amount of raw materials were issued to production during June?

(c) Was overhead under/over applied during June and by how much?

(d) Prepare the journal entry to adjust the under/over applied overhead costs.

Question 2

Alphabet Corporation sells three products: J, K, and L. The following information was taken from a recent budget:

Total fixed costs are anticipated to be $2,450,000.

Required:
(a) Determine the weighted-average contribution margin.

(b) Calculate the number of units of J, K, and L that must be sold to break even.

(c) If Alphabet Corporation desires to increase its profitability, should it attempt to increase or decrease the sales of product K relative to those of J and L? Briefly explain.

(d) Calculate the number of units of J, K, and L that must be sold to achieve a target profit of $1,750, 000 (ignore taxes)

(e) What is the safety margin? What is the purpose of calculating the safety margin?

Question 3

(a) Duo Company manufactures two products, Uno and Dos. Unit selling prices and unit costs for two products are as follows:

	Uno	Dos
Unit sales price...............................	$158	$300
Less: Direct material........................	80	70
Direct labour ($20 per hour)......	30	80
Variable overhead.....................	18	75
Fixed overhead ........................	15	20

The same employees work on both products and earn the same rate of $20 per hour.

Required:
(i) If the company can add more resources as needed (i.e. labour is not a constraint), which of the Company's products is more profitable? Explain. Assume that there is sufficient demand for the additional production of any product.

(ii) If the company has a limited amount of labour time, which product should the spare production capacity be devoted to producing? Explain.

(iii) If the annual demand for Uno and Dos is 4000 units and 2250 units respectively, and if 12,000 labour hours are available, how many units of each product should the firm produce in order to maximise company's profit? What is the maximum profit?

(b) The managing director of Allens Home Interiors, an interior design firm, asked the accountant to consider developing a service costing system. The accountant responded:

‘We're a service business. All our costs are period costs that have to be expensed in the period in which they have been incurred. We don't need product costing.'

The managing director is furious. (He's never heard of period costs!) He asks you to evaluate the accountant's response and to prepare a clear explanation of how service costing could help him manage the business.

Question 4

(a) Jiambalvo Company produces a single product. The cost of producing and selling a single unit of this product at the company's normal activity level of 40 000 units per month is as follows:

Direct materials...........................................	$38.80
Direct labour .............................................	9.70
Variable manufacturing overhead......................	2.30
Fixed manufacturing overhead..........................	18.10
Variable selling and administrative expenses.........	1.70
Fixed selling and administrative expenses.............	8.80

The normal selling price of the product is $81.10 per unit. An order has been received from an overseas customer for 3 000 units to be delivered this month at a special discounted price. This order would have no effect on the company's normal sales and would not change the total amount of the company's fixed costs. The variable selling and administrative expense would be $0.20 less per unit on this order than on normal sales. Direct labour is a variable cost in this company.

Required:
(i) Suppose the company has sufficient idle capacity to produce the units required by the overseas customer and the special discounted price on the special order is $75.30 per unit. By how much would this special order increase (decrease) the company's net operating income for the month?

(ii) Suppose the company is already operating at capacity when the special order is received from the overseas customer. What would be the opportunity cost of each unit delivered to the overseas customer?

(iii) Assume now that the company does not have enough idle capacity to produce all of the units for the overseas customer and accepting the special order would require cutting back on production of 1000 units for regular customers. What would be the minimum acceptable price per unit for the special order? (rounded to the nearest two decimal palces).

(iv) Identify two qualitative factors that Jiambalvo should consider before a final decision is made in part (iii).

(b) Conventional costing systems are always inappropriate as they tend to report lower product costs than those reported by activity-based costing systems for low-volume, small-batch, and specialty product lines. Critically evaluate this statement.

Question 5

Local Steel Construction Company produces two products, steel and wood beams. Steel beams have a unit contribution margin of $200, and wood beams have a unit contribution margin of
$150. The demand for steel beams exceeds Local Steel Construction Company's production capacity, which is limited by available direct labour and machine-hours. Management desires that the product mix should maximize weekly profits.

Direct manufacturing labour is limited to 4,800 hours a week and the company's outdated machines can only run for 3,200 hours a week. Each steel beams requires 160 hours of labour and 160 machine-hours. Each wood beam requires 160 labour hours and 80 machine-hours.

Required:
(a) State the objective function and the constraints that Granite Ltd should use to maximise the total contribution margin generated by the two products.

(b) Graph the constraints and determine the optimal amount of units of each product that should be produced in order to maximise the profits of the company.

(c) What is the maximum profit at the optimal solution?

Question 6
Scot Company plans to sell 400,000 units of finished product in July 20X3. Management anticipates a growth rate in sales of 5% per month thereafter and desires a monthly ending finished-goods inventory (in units) of 80% of the following month's estimated sales. There are 300,000 completed units in the June 30, 20X3 inventory.

Each unit of finished product requires four kilograms of direct material at a cost of $1.50 per kilogram. There are 1,600,000 kilograms of direct material in inventory on June 30, 20X3.

Required:
(a) Prepare a sales budget for the quarter ended September 30, 20X3.

(b) Prepare a production budget for the quarter ended September 30, 20X3.

(c) Independent of your answer to part "a" and "b', assume that Scot plans to produce 1,200,000 units of finished product for the quarter ended September 30. If the firm desires to stock direct materials at the end of this period equal to 25% of the quarter's current production usage, compute the cost of direct material purchases for the quarter.

(d) What is budgetary slack? Provide two suggestions as to how an organization can reduce the problems caused by budgetary slack.

Question 7

Excellent Controls Pty Ltd is a manufacturer of electrical switches, and uses a standard costing system. The standard manufacturing overhead costs per switch are based on direct labour hours and are as follows:

Variable overhead (5 hours @ $8 per hour) $40
Fixed Overhead (5 hours @ $12 per hour) $60
Total overhead $100

The fixed overhead allocation rate is based on normal monthly capacity of 300,000 direct labour hours. Fixed overhead and production are expected to be spread evenly throughout the year.

The following information is available for the month of October.

60 000 switches were budgeted while 56,000 switches were produced. 275,000 direct labour hours were worked at a total cost of $2,550,000 Variable overhead costs were $2,340,000
Fixed overhead costs were $3,750,000

Required:
(a) Compute the following variances for the month of October.

i. Variable overhead spending

ii. Variable overhead efficiency

iii. Fixed overhead budget

iv. Fixed overhead volume

(b) Explain two advantages of using a flexible budget for control, compared with using a static budget.

(c) Discuss the four factors that managers may consider when assessing the significance of a variance.